Trustees urged to document transfer due diligence following TPO rulings

Trustees must ensure that the correct processes are not only in place, but are documented and evidenced, when undertaking member transfer due diligence, industry experts have warned.

Speaking at the Society of Pension Professionals (SPP) online conference, Allen & Overy LLP counsel, Jessica Kerslake, warned that trustees are in a “very difficult position with regards to transfers”.

Reflecting on recent judgments from The Pensions Ombudsman, she emphasised that whilst there are certain due diligence checks that must be undertaken to prevent scam activity, a transfer cannot be delayed in order to ensure these are completed.

In particular, Kerslake explained that whilst the ombudsman had traditionally taken the view that loss of opportunity isn’t necessarily quantifiable as a financial loss, instead awarding compensation through suffering and distress payments, these recent judgments will make it “more difficult” for trustees to argue this case.

This was echoed by Hogan Lovells International partner, Edward Brown, who stated that he was "slightly uncomfortable" with the direction of travel, but that the approach the ombudsman is taking is “clear”.

Following the recent case against James Hay Partnership, where a transfer delay prevented a member from investing in the stock markets following the Brexit referendum, for instance, Brown warned that there could be “an awful lot more claims” around investment loss in future.

He warned that this could be potentially “quite worrying” for schemes when considering how to balance the due diligence expected of them to prevent a scam, with the need to pay quickly in other circumstances to avoid a complaint around investment loss.

However, he also emphasised the importance of considering causation, suggesting that asking members requesting a transfer their motivation and timeline, whilst an extra step for trustees and administrators, could provide evidence that would prove helpful in disagreements where a member is claiming loss of opportunity.

Kerslake also warned that these rulings could also have further ramifications in the current environment, as many members will have had difficult in switching investments as a result of Covid-19.

Indeed, both Brown and Kerslake stated that they had already seen member complaints specifically referring to delays stemming from the pandemic and that an increase in the number of similar complaints would be unsurprising.

Kerslake also warned that an increase in activity from claims management companies is also likely to see an increase in claims, with many of these originating with a subject access data request.

Considering this, Brown urged trustees to look “very carefully” at data subject access requests to understand what the potential risks of a claim could be, also emphasising however, that no information should be omitted.

Eversheds Sutherland partner, Claire Carroll, also urged trustees to consider how much investigatory work they undertake with members in order to tease out what the member would have actually done had the maladministration not taken place.

She emphasised that “evidence is everything”, stressing that any processes undertaken must also be documented to ensure that there is evidence on file.

Kerslake echoed this, suggesting that many administrators have checklists to ensure that they are meeting requirements.

She also warned however, that trustees must ensure that these checklists are checked frequently to ensure they align with industry best practice or new regulations or guidance, or they could serve as evidence against the scheme, highlighting any steps they may have omitted.

Kerslake noted that often trustees are “reliant” on their administrators for due diligence, explaining that a lot of administrators will have their own processes that don’t necessarily meet all requirements for the current guidance, such as contacting the member.

Eversheds Sutherland partner, Claire Carroll, agreed, saying that “many administrators run on tight margins” and that building in more dialogue with members could put “quite a lot of onus” on these teams.

However, Brown argued that whilst budgets are tight, looking at the direction of travel from recent judgments, it may be in trustees best interests to pay an additional fee for these services where needed.

Kerslake also stressed that trustees should avoid relying on administrators, where possible.

In particular, she urged trustees to at least be aware of what their administrator is doing, also highlighting that there is often an opportunity for trustees to provide supplementary guidance to members.

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